1. Lecture 2 on the European Natural Gas Market Auke Lont Member of Supervisory Board Gasunie

2. World Energy Demand Source: World Energy Outlook 2007 IEA

4. European gas supply

5. Future European gas supply creating concerns Security of supply - price of energy - environment

6. Gas supplies to Western Europe (2020)

7. Existing U/C & planned Speculative GALSI MEDGAZ Green Stream Baltic Pipe BBL Britpipe

8. 750 2250 1 365 MCM/dag Load Duration Curve NW-Europe Seasonal Storages Supply Production Groningen Gas day Demand profile Peak supply Natural gas demand depends strongly on weather Swingratio ’95-’04 Belgium Denemark France Germany Netherlands United Kingdom 29% 36% 47% 36% 34% Demand ’05 (BCM) 17.6 5.5 48.0 93.0 43.0 93.0 winter Baseload Gasvraag summer Baseload demand Working gas volume

9. Pricing of natural gas  Market value principle – interfuel competition –’fixed in volume, flexible in price’ –High investment cost pr unit of transportation  Take or pay contracts as basis for development of markets – ’long term marriage’ –Suppliers investing in platforms and transmission pipelines –Gas companies investing in distribution lines and storage  Gas-to-gas competition

10. Future of European gas  EU deregulation and 2020 agenda –Unbundling –Carbon price –Security of supply –renewables  Industry consolidation  New pipelines –Nordstream –Southstream –Nabucco  LNG  CCS (carbon capture and storage)

11. What to do at EconPoyry?  Research – Ph D students  Analysis – market models  Consulting – large energy companies as clients  Examples –European Power market model –Nordic Power model –Carbon model –Gas portfolio optimization models –Scenario modelling  Visit us! –www.econ.nowww.econ.no –www.poyry.nowww.poyry.no –www.gasunie.nl